Zoetis to buy veterinary diagnostics firm Abaxis for $1.9 billion

(Reuters) - Top animal health company Zoetis Inc (ZTS.N) will buy Abaxis Inc ABAX.O for $1.9 billion, looking to capture a bigger slice of the fast-growing market for diagnostics services that cater to household pets and farm animals.

FILE PHOTO: Zoetis CEO Juan Ramon Alaix gives an interview following his company's IPO on the floor of the New York Stock Exchange, February 1, 2013. REUTERS/Brendan McDermid

The deal announced Wednesday reflects Zoetis’ expectation that the diagnostics category will grow at a faster pace than the broader animal health industry.

Abaxis — which makes blood and urine tests to predict, detect and treat diseases such as heartworm, Lyme disease or tick-borne infections — will also help its New Jersey-based acquirer bolster its presence in overseas markets.

Zoetis faces much lesser competition internationally than in the United States, its Chief Executive Officer Juan Alaix said on a conference call with analysts.

“The characteristic of patients in animal health is that they don’t speak. So in our industry, almost every animal getting into clinics needs to have a diagnostic test,” Alaix said.

The veterinary diagnostics market worldwide is expected grow to $3.6 billion in 2022 from $2.3 billion in 2017, according to research firm MarketsandMarkets here

By contrast, the global animal medicines and vaccines market is worth around $30 billion, according to veterinary consultancy Vetnosis.

Much of Zoetis’ revenue is driven by its animal dermatology business, and diagnostics contribute just under 1 percent of its overall annual revenue of more than $5 billion.

“We believe this is a good deal for Zoetis although the valuation seems high,” BMO Capital Markets analyst Alex Arfaei said.

Shares of Abaxis rose as much as 16 percent to an all-time high of $83.24, inching past Zoetis’ all-cash offer price of $83 per share.

At seven times Abaxis’ annual revenue, the price Zoetis is paying is already “pretty steep,” said C.L. King and Associates analyst David Westenberg. “If there’s another bidder, I don’t think Zoetis would go any higher,” he said.

However, should there be a rival offer, the companies most likely to make a bid would be Eli Lilly and Co’s (LLY.N) animal health unit Elanco or candy and pet food company Mars Inc, Westenberg said.